Oil prices rose on Thursday after hitting multi-month peaks in the previous session, driven by a combination of softer U.S. inflation data, new sanctions on Russian oil, and significant drawdowns in U.S. crude inventories. At 20:28 ET (01:28 GMT), Brent oil futures were 0.4 percent higher at $82.35 a barrel, and crude oil WTI futures expiring in March rose 0.4 percent to $79.01 a barrel.
Oil prices rose more than 2 percent on Wednesday as a benign U.S. inflation report brought back rate cut expectations into play. The prospect of lower interest rates typically supports economic growth, potentially boosting oil demand.
U.S. inflation data and its impact on oil prices
U.S. Consumer Price Index (CPI) for December rose by 0.4 percent, largely in line with economists’ expectations, while an underlying measure was slower than anticipated. The soft inflation data spurred a rally in oil prices, as it raised expectations of a less aggressive Federal Reserve stance, potentially weakening the U.S. dollar and boosting demand for commodities like crude oil. The data alleviated some concerns about the U.S. Federal Reserve’s hawkish outlook, where it has projected just two rate cuts in 2025.Â
When interest rates are lower, borrowing becomes cheaper, encouraging both businesses and consumers to spend more. This increased economic activity can drive higher demand for oil, as industries and transportation sectors require more energy. Additionally, lower rates often lead to a weaker U.S. dollar, which makes oil, priced in dollars, more affordable for foreign buyers. As a result, the combination of stronger demand and a weaker dollar typically leads to rising oil prices. The U.S. Dollar Index fell 0.1 percent on Thursday, retreating further from its two-year peak.
U.S. sanctions on Russian oil could disrupt supply – IEA
The U.S. has imposed new sanctions targeting Russian oil exports. The International Energy Agency (IEA) noted that these sanctions could disrupt Russia’s oil supply chains, potentially tightening the global oil market. The sanctions focus on entities responsible for over a third of Russian and Iranian crude exports in 2024, aiming to limit their ability to transport and sell oil. This development has raised concerns about potential supply shortages, contributing to the upward pressure on oil prices. “While it is too early to fully quantify the potential impact from these new measures, some operators have reportedly already started to pull back from Iranian and Russian oil,” the Paris-based agency said.
Read more: Oil prices steady at $79.95 amid key U.S. inflation data release
U.S. crude inventories decline – EIA report
Supporting the bullish sentiment, the U.S. Energy Information Administration (EIA) reported a significant drawdown in crude oil inventories. This reduction indicates a tightening supply, further boosting oil prices. Crude inventories fell by 2 million barrels in the week ending Jan. 10, compared with a forecast of 992,000-barrel draw. Gasoline and distillate inventories rose more than expected for the week.
Oil prices were largely steady on Wednesday as traders remained cautious ahead of a closely watched U.S. inflation report, while prices still hovered near a four-month high. At 20:58 ET (01:58 GMT), Brent oil futures were unchanged at $79.95 a barrel, while crude oil WTI futures expiring in March inched up 0.1 percent to $76.45 a barrel. Oil had rallied at the start of this week and reached a four-month high on Monday after the Joe Biden administration introduced a comprehensive sanctions package aimed at cutting into Russia’s oil and gas revenues. This sparked concerns over tightening supply and the potential for increased demand from alternative sources, with analysts suggesting sanctions could push the price of Brent up to $90 per barrel.
API reports smaller-than-expected decline in crude inventories
The American Petroleum Institute (API) report showed that U.S. crude inventories fell by about 2.6 million barrels for the week ended Jan. 10, compared with a draw of 4 million barrels reported by the API for the previous week. Economists were expecting a decline of 3.5 million barrels. A smaller drawdown typically means that demand for crude oil may not be as high as anticipated, or that supply is more robust than expected. Gasoline inventories rose by approximately 5.4 million barrels, while distillate stockpiles, including diesel and heating oil, expanded by 4.9 million barrels. The official government report providing detailed inventory data is scheduled for release later in the day.Â
Oil prices saw a slight decline on Tuesday, retreating from a four-month peak driven by recent U.S. sanctions on Russian oil exports and anxieties regarding potential supply disruptions. As of 20:02 ET (01:02 GMT), Brent oil futures decreased by 0.3 percent to $80.77 per barrel, while crude oil WTI futures for March also fell by 0.3 percent, reaching $77.12 per barrel. This follows a rally in the previous two sessions, culminating in a four-month high the day before. The surge was largely influenced by the Biden administration’s introduction of its most extensive sanctions package on Friday, aimed at undermining Russia’s oil and gas revenue streams.
